Reform Update: Beaumont moves into pay-for-performance with new Blues contract

One of Michigan's largest health systems has entered its first insurance contract to pay hospitals based on performance, not volume, a move that underscores the industry's halting progress toward the financing reform that is widely cited as essential to more affordable healthcare.

Beaumont Health System, based in Royal Oak, joins a growing number of hospital operators with contracts that tie bonuses to performance on quality or health spending growth or both, though others have pursued such risk-based contracts earlier and more aggressively. A few entered into risk-based contracts before the 2010 Patient Protection and Affordable Care Act, which included policies to promote financing reform. Adoption has accelerated since, but unevenly, and results have so far been mixed. Some contracts offer larger potential bonuses but also include penalties if performance falls short. The risk of failure has sidelined some hospitals, as executives wait and see how others fare.

Beaumont Health took a “relatively slow” approach, said Dr. David Wood, the system's chief medical officer. The new contract comes after strategic preparation for new reimbursement models, such as the 2013 agreement to clinically integrate with a large independent physician group.

Executives did not doubt that health reform and the marketplace would shift hospital payment toward more risk-based contracts, he said. But with no experience and potential financial risk, Beaumont Health executives decided to first work toward better coordination with physicians, which would potentially achieve the quality and savings targets that risk contracts require. “We wanted to get some experience,” he said.

Last year, Beaumont Health entered into an agreement with local physicians to work more closely on quality and efficiency to prepare for new payment models.

The new risk-based contract with Blue Cross and Blue Shield of Michigan, one of several the insurer announced this week, is Beaumont's entry into payment models that will become far more common in coming years, he said. “It's a start down that road.” Indeed, Beaumont Health will meet later this week with a nearby Medicare accountable care organization about a potential partnership.

The risk contract will edge Beaumont Health away from the dominant payment model that rewards providers based on the volume of costly diagnostic tests and procedures they perform. Policymakers cite pay-for-volume as one culprit behind the rapid escalation in health spending prior to the recession that ended in 2009.

“We have a perverse system,” said Stephen Anderson, vice president of provider contracting and network administration for the Michigan Blues carrier. “We don't pay providers do to the right things.” The bonus offered to systems that slow health spending is an incentive to use care coordination that promotes health and prevents hospital visits, he said.

Under the contract, hospitals that hold down per member, per month costs will receive some of what they save the insurer.

Blue Cross and Blue Shield of Michigan has rapidly expanded its use of risk-based contracts from five hospitals in 2012 to 24 hospitals that account for 43% of what the insurer spends on hospital care each year, Anderson said. The Blues will monitor quality performance separately through a performance-based contract for physicians already in place.

The Michigan Blues announced the Beaumont contract this week, as well as contracts other contracts in the state with Ascension Health's Michigan operations; MidMichigan Health, Midland; Oakwood Healthcare, Dearborn; and Botsford Hospital, Farmington Hills.

Between 5.8% to 18.8% of post-acute rehabilitation facilities patients returned to acute-care hospitals within 30 days of leaving, researchers report in the Journal of the American Medical Association. The study looked at Medicare patients who were treated for the most common conditions: stroke, lower extremity fractures, lower extremity joint replacement, debility, neurologic disorders and brain dysfunction. The study examined 2006-11 records for more than 736,000 Medicare fee-for-service patients. Authors said more research was needed to understand why patients returned to the hospital so quickly and stressed the importance of the work. The CMS will now track repeat post-acute hospital visits as a quality indicator and new bundled payment incentives would benefit from the research, they wrote. “Understanding the ramifications of bundling requires accurate information regarding readmission rates for patients receiving post-acute services,” they said.

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